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Licensing Laws Are Shutting Young People Out Of The Job Market

This is In Real Terms, a column analyzing the week in economic news. Comments? Criticisms? Ideas for future columns? Email me or drop a note in the comments.


Young people entering the job market have always faced challenges: a lack of skills and experience, limited professional networks, unfamiliarity with workplace culture and expectations. But increasingly, they are also facing another obstacle: legal requirements that can shut off avenues to jobs before they even get the chance to apply. New data reveals just how widespread the problem is, and also why the trend isn’t likely to reverse anytime soon.

At issue are occupational licensing laws — rules, usually at the state or local level, that require workers to get a government-issued license to hold certain jobs. That makes sense for doctors and accountants, but the requirements are increasingly spreading to barbers, cosmetologists and even landscapers. (The New York Department of Labor lists 130 occupations that require licenses.) In many cases the rules seem designed less to protect consumers than to protect politically connected workers and businesses who want to deter potential competition — what economists call “rent-seeking.” As I wrote back in February, politicians and experts from across the political spectrum are increasingly concerned about the damage licensing and other forms of rent-seeking are doing to the economy.

Quantifying the trend, however, has been tricky. A White House report last year found that occupational licensing requirements have quintupled over the past 60 years and now cover more than one in four workers. But there has been only patchy data on the people and industries affected, making it hard to know the scope of the problem or how to address it.

A week ago, however, the Bureau of Labor Statistics released a trove of new data on licenses — who has them, how much they earn and how they compare to other workers. The numbers are based on a new set of questions added to the monthly Current Population Survey in 2015, so there is no historical information available, but the new evidence is broadly consistent with what the White House and other economists have found: Close to a quarter of workers, 22.4 percent, have a government-issued license, and 25.5 percent have either a license or a privately issued certification. Unsurprisingly, licenses were concentrated in the medical field, where mistakes can cost lives, but even in nonmedical occupations, nearly one in five workers had a license in 2015.1

Licensing rules are a particular problem for young workers trying to break into the job market, especially those without a college degree. The unemployment rate for adults ages 18 to 35 with neither a license nor a college degree was 9.9 percent in 2015; for those with a license (but still no degree), it was 5.2 percent.2 Those who do manage to find full-time jobs earn 13 percent less than those with a license. Good jobs that don’t require a license are scarce, particularly for women: Nearly two-thirds of young women without a license or a degree earn less than $540 a week, roughly two-thirds of the median wage for full-time workers. (For women with a license, about half earn at least $540 a week, in part because women dominate many medical occupations.) Licensing rules don’t explain all or even most of that gap — there are likely other differences between people who have licenses and those who don’t — but they probably do play a role. The earnings gap shrinks, but doesn’t disappear, after controlling for education, occupation and other factors.

Young workers aren’t the only ones affected. Among older workers, the earnings disparities between those with licenses and those without aren’t as stark,3 likely because they have had more time to find their way into a career (and perhaps also because occupational licensing wasn’t as widespread when they entered the workforce). But when older workers lose jobs, licensing requirements can make it hard for them to get back to work, especially if they need to change careers. Workers over 45 consistently face longer spells of unemployment when they lose jobs compared with younger workers; unemployment lasts more than 40 percent longer for those without a license.4

One solution, of course, is for workers without licenses to get them. But state licensing programs are often long and expensive, which can deter low-income workers or those who aren’t yet sure what career they want to pursue. And licenses can be barriers in other ways as well, making it hard for people to move to other states, where their license may not be valid, or to pursue entrepreneurial ideas, which may not fit with licensing requirements.

Both Democrats and Republicans have spoken out against excessive licensing in recent years. But the problem is that the winners from licensing laws are clear, as Josh Zumbrun noted this week in The Wall Street Journal. Particularly for workers without a college degree, a license brings higher earnings and a reduced risk of unemployment. The losers, even though there are probably more of them, are harder to identify. Someone who avoids becoming a hairdresser because of the mandated training, for example, may not think of herself as being a victim of licensing, even if she is. As a result, supporters of licensing have a stronger incentive to defend their interests, making it hard to roll back the laws once they’re in place.

Sorry, millennials

Unnecessary licensing rules aren’t the only challenge facing young people. The whole economy seems stacked against them.

That’s the depressing takeaway from a new report from the Economic Policy Institute, a liberal think tank. The report finds that recent high school graduates are still struggling to find jobs despite the dramatic improvement in the overall labor market. More than one in seven recent high school graduates, which the institute defines as those ages 17 to 20, are neither working nor enrolled in college; their unemployment rate is nearly 18 percent. (Both numbers are elevated compared with before the recession.) Those who do find jobs are experiencing sluggish wage growth.

College graduates are doing a bit better, but they face their own challenges. The unemployment rate for college graduates ages 21 to 24 has fallen from nearly 10 percent in the recession to 5.6 percent, roughly where it was when the recession began. But many are underemployed, settling for jobs that are part time or that don’t require a college degree. Only 29.4 percent of recent college graduates with jobs have employer-provided retirement benefits; among recent high school graduates, that figure is just 4.5 percent.

Can you hear them now?

Remember that precipitous decline in strikes and lockouts that I wrote about a few weeks back? Well, about 39,000 Verizon workers walked off the job last week, eight months after their contract expired. The strike is bigger than any since 2011 — the last time Verizon workers went on strike. That strike lasted two weeks; so far, there is no sign this one is nearing its end.

Number of the week

In two months, Britons will go to the polls to decide whether their country should leave the European Union. Bloomberg puts the odds of a “Brexit” (yes, people are really calling it that) at 20 percent. The “remain” faction has an edge in the polls, but only a narrow one, and about 15 percent of voters remain undecided.

Most economists think leaving the EU would be bad for Britain (and probably for the rest of Europe), but they disagree about just how bad; mainstream predictions seem to run roughly from “mild but unnecessary recession” to “apocalyptic hellscape” (only a mild exaggeration). The U.S. is watching nervously; in a letter in the Times of London on Wednesday, eight former U.S. Treasury secretaries urged British voters not to take the “risky bet” of leaving. President Obama is expected to join the chorus during a visit to England on Friday. (Not everyone there is pleased about his meddling.)

Elsewhere

The media tends to depict millennials as educated, affluent urbanites. Derek Thompson shows that the reality is much different.

Nicole Chung writes about how her and her husband’s very different childhoods affect their feelings about money in adulthood.

Chicago Ridge School District on Chicago’s southern border spent $9,794 per student in 2013. Roundout District 72, in Chicago’s affluent northern suburbs, spent $28,639. NPR digs deep into what’s behind the disparity, in Illinois and around the country.

California is considering a bill to let Uber drivers unionize. Karen Weise and Josh Eidelson look at that fight and the broader battle over how the law should respond to the rise of the “gig economy.”

Footnotes

  1. I’m defining “medical” here to mean anyone who works in what the BLS calls “health care practitioner and technical occupations,” which includes doctors, nurses, radiologists and other skilled jobs. I am not including people in “health care support occupations” such as orderlies, home health aides and massage therapists.

  2. These calculations are based on Current Population Survey microdata.

  3. After controlling for education and occupation.

  4. The median duration of unemployment for workers ages 45 to 69 without a license was 17 weeks in 2015, compared with 12 weeks for those with licenses.

Ben Casselman is a senior editor and the chief economics writer for FiveThirtyEight.

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